M/s ValueLabs Technologies, Hyderabad V. Income Tax Officer, Ward-8(1), Hyderabad

ITA 1919/Hyd/2017

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 9425 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 4 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-04-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB-B
• Next Hearing Date: 20-02-2019
• Assessment Year: 2013-2014
• Appeal Filed On: 23-11-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: Y V S T SAI
• Assessee Lawyers: P MURALI MOHANA RAO
• Keywords: Transfer pricing; International transaction; Retrospective amendment; Notional interest
• Section: 92C; 143(3); 92B; 10AA; 234B; 92

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B , HYDERABAD BEFORE S MT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S . RIFAUR RAHMAN , ACCOUNTANT MEMBER ITA NO. 1 919 /HYD/201 7 ASSESSMENT YEAR: 20 13 - 14 VALUE LABS TECHNOLOGIES, HYDERABAD. PAN A A IFV6716G VS. INCOME - TAX OFFICER , WARD 8(1), HYDERABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI P. MURALI MOHANA RAO REVENUE BY : SHRI Y.V.S.T. SAI DATE OF HEARING : 20 - 02 - 201 9 DATE OF PRONOUNCEMENT : 05 - 0 4 - 201 9 O R D E R PER S . RIFAUR RAHMAN, A .M.: THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER PASSED U/S 143(3) RWS 92CA(3) & 144C(13) OF THE INCOME - TAX ACT, 1961 (IN SHORT THE ACT ) FOR THE AY 2013 - 14. 2. BRIEF FACTS OF THE CASE ARE, ASSESSEE COMPANY, FILED ITS RETURN OF INCOME FOR THE AY 2013 - 14 ON 2 7 /11/2013 DECLARING INCOME OF RS. 1,52,710 / - . SUBSEQUENTLY, THE CASE WAS SELECTED FOR SCRUTINY UNDER CASS A ND ISSUED NOTICE U/S 143(2 ) . IN RESPONSE TO THE SAID NOTICES, THE AR OF THE ASSESSEE FURNISHED THE INFORMATION CALLED FOR. 2.1 AFTER VERIFICATION OF THE INFORMATION, THE AO REFERRED THE MATTER TO TPO U/S 92CA(1) OF THE ACT, WITH THE PRIOR APPROVAL OF THE PR.CIT - 2 , HYDERABAD FOR DETERMINATION OF ARMS LENGTH PRICE IN RESPECT OF INTERNATIONAL TRANSACTION REPORTED BY THE ASSESSEE FOR THE FY RELEVANT TO AY 2013 - 1 4, AMOUNTING TO RS. 30,54,46,034/ - . 2 ITA NO. 1919 /HYD/201 7 VALUE LABS TECHNOLOGIES, HYD. 3. PROFILE OF THE TAXPAYER: M/S VALUE LABS TECHNOLOGIES IS A REGISTERED PARTNERSHIP FIRM UNDER THE INDIAN PARTNERSHIP ACT, 1932 ON 11 TH MARCH, 2011. IT IS ENGAGED IN THE BUSINESS OF RENDERING SOFTWARE DEVELOPMENT SERVICES TO ITS CUSTOMERS AND BUSINESS SOFTWARE SOLUTIONS THAT HELP ORG ANIZATIONS UNDERSTAND, REUSE AND MODERNIZE THE APPLICATIONS THAT SUPPORT THEIR FUNDAMENTAL BUSINESS PROCESS. IT IS REGISTERED ITS UNIT IN SPECIAL ECONOMIC ZONE (SEZ). IT PROVIDES OFFSHORE SOFTWARE DEVELOPMENT SERVICES TO ITS VARIOUS CLIENTS ACROSS THE GLOB E INCLUDING THE RELATED PARTIES. 3.1 INTERNATIONAL TRANSACTIONS: AS PER 3CEB REPORT/TP DOCUMENT, THE INTERNATIONAL TRANSACTIONS REFLECTED ARE AS UNDER: AE NATURE OF TRANSACTION AMOUNT (RS.) VALUE LABS INC SOFTWARE DEVELOPMENT SERVICES 14,28,93,424 VA LUE LABS FZ LLC - DO - 16,25,52,610 30,54,46,034 THE TPO NOTED THAT THE ASSESSEE HAS NOT REPORTED IN FORM 3CEB OR TP DOCUMENT FOR THE FOLLOWING TRANSACTION: RECEIVABLES RS. 8,41,85,151 3.2 AS REGARDS SOFTWARE DEVELOPMENT SERVICES, T HE TPO OBSERVED THAT MARGIN OF THE ASSESSEE IS HIGHER THAN THE AVERAGE MARGIN OF COMPARABLES SELECTED BY HIM. THUS, THE PRICE RECEIVED BY THE ASSESSEE IS BEYOND THE ALP AND IN VIEW OF THE PROVISIONS OF SECTION 92(3), NO ADJUSTMENT WAS PROPOSED BY TPO. 3. 3 AS REGARDS RECEIVABLES, THE TPO NOTICED THAT THE ASSESSEE HAS RECEIVABLES OF RS. 8,41,85,151/ - AT THE END O F THE YEAR. THE ASSESSEE WAS ASKED TO SUBMIT THE DETAILS OF RAISING THE INVOICE AND SUBSEQUENT RECEIPT. IT WAS PROPOSED TO CHARGE INTEREST @ 14.45% P.A TO WHICH THE 3 ITA NO. 1919 /HYD/201 7 VALUE LABS TECHNOLOGIES, HYD. ASSESSEE REPLIED THAT OUTSTANDING RECEIVABLES ARE CONSEQUENT TO THE INTERNATIONAL TRANSACTI ONS OF PROVISION OF SDS AND NOT IN THE NATURE OF ANY ADVANCE/LOANS. SINCE THESE ARE CLOSELY LINKED WITH THE SALE OF SERVICES THEY HAVE BEEN AGGREGATED WITH THE PRINCIPLE TRANSACTION OF SALES FOR THE PURPOSE OF ECONOMIC ANALYSIS. IT IS FULLY FUNDED ENTITY A ND THE SALES AND RECEIVABLES ARE RUNNING ACCOUNTS AND THE WCA DULY CONSIDERED THE IMPACT OF OUTSTANDING RECEIVABLES. THE TAXPAYER HAS RELIED ON VARIOUS CASE LAWS OF VARIOUS TRIBUNALS IN THIS REGARD. 3.4 AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, T HE TPO OBSERVED THAT W ITH THE RETROSPECTIVE INTRODUCTION OF EXPLANATION TO SECTION 92B, RECEIVABLES FORM A PART OF INTERNATIONAL TRANSACTION AND NO FURTHER ANALYSIS IS REQUIRED. IN THIS REGARD, ON GOING THROUGH THE SUBMISSION MADE IT IS SEEN THAT THE TAXPA YER HAS PROJECTED THAT RECEIVABLES AT THE END OF YEAR ARE FORMING PART OF THE .WCA COMPUTATION AND AS SUCH THE INTEREST IS ALREADY IMPACTED THEREIN. HOWEVER, THE RECEIVABLES ARE OFF - SET BY PAYABLES ALSO AND IN CASE TO CASE DIFFER. HOWEVER, THERE MAY BE A S ITUATION WHERE THE TAXPAYER DOES NOT RECEIVE THE AMOUNTS DUE THROUGHOUT THE YEAR BUT THE ENTIRE PAYMENT IS RECEIVED IN MARCH ITSELF THEN IN THIS CASE THE RECEIVABLE AT THE END OF THE YEAR WOULD BE ALMOST NIL AND IT WOULD GIVE A FAVOURABLE WCA TO THE TAXPAY ER. ALSO, THE WCA TAKES INTO ACCOUNT THE PAYABLES AS WELL AS RECEIVABLES AT THE END OF THE YEAR BUT DOES NOT TAKE INTO ACCOUNT THE RECEIVABLES WITHIN THE YEAR. THEREFORE, THE CONTENTION OF THE TAXPAYER IS NOT ACCEPTABLE. 3.5 THE TPO OBSERVED THAT T HE VARI OUS JUDICIAL FORUMS DID NOT CONSIDER THE ABOVE FACTS. HENCE, ONCE THE TRANSACTION IS AN INTERNATIONAL TRANSACTION THEN THE ARM'S LENGTH PRICE HAS TO BE DETERMINED. IT IS NOT THE CASE OF ' AGGREGATION OF TRANSACTIONS WHICH THE TAXPAYER IS PROJECTING WHEN IT SAYS THAT THE WCA TAKES INTO ACCOUNT THE IMPACT OF OUTSTANDING RECEIVABLES. RELIANCE IS PLACED ON CHIEL INDIA PVT. LTD [TS - 145 - ITAT - 2014(DEL) - TP ) , WHICH ALSO TOOK INTO ACCOUNT JUDGEMENT DATED 07 - 10 - 2010 OF ITAT BANGALORE BENCH IN 4 ITA NO. 1919 /HYD/201 7 VALUE LABS TECHNOLOGIES, HYD. THE CASE OF M / S LOGIX MICR O SYSTEMS LTD. VS. ACIT (ITA NO. 524/BANG/2009). 3.6 IN VIEW OF THE ABOVE OBSERVATIONS, THE T PO CHARGED INTEREST @ 14.45% ON THE RECEIVABLES RECEIVED BEYOND THE DUE DATE AND COMPUTED THE ARMS LENGTH PRICE ON INTEREST ON RECEIVABLES AT RS. 39,37,353/ - AND THE SAME WAS TREATED AS ADJUSTMENT U/S 92CA OF THE ACT. 4. WHEN THE ASSESSEE CARRIED THE OB JECTIONS BEFORE THE DRP, THE DRP DIRECTED THE AO TO APPLY THE APPLICABLE INTEREST AS PER DOMESTIC TERM DEPOSIT RATES OF SBI PREVAILING FOR THE FY 2012 - 13. 5. AS PER THE DIRECTIONS OF DRP, THE AO COMPUTED THE INTEREST ON RECEIVABLES AT RS. 17,71,128/ - / - A S AGAINST 39,37,353/ - / - COMPUTED BY THE TPO. 6. AGGRIEVED BY THE ORDER OF DRP, THE ASSESSEE IS IN APPEAL BEFORE US RAISING THE FOLLOWING GROUNDS OF APPEAL: 1. GROUND NO.1 1.1 THAT, THE ORDER OF THE LEARNED TRANSFER PRICING OFFICER ('LD. TPO')/ LEARNED ASSESSING OFFICER ('LD. AO')/ LEARNED DISPUTE RESOLUTION PANEL ('LD. DR P ) IS ERRONEOUS BOTH ON FACTS AND IN LAW. 2. GROUND NO.2 2.1 THE LD. TPO/ LD. AO/LD. DRP HAS ERRED BO TH IN FACTS AND IN LAW IN RECOMPUTING THE DEDUCTION U/ S 10AA OF THE ACT AT RS. 1 0,78,97,665/ - AS AGAINST RS. 10,83,10,806/ - CLAIMED BY THE APPELLANT. 2.2 THE LD. TPO/LD. AO/ LD. DRP HAS ERRED BOTH IN FACTS AND IN LAW IN HOLDING THAT TELECOMMUNICATION C HARGES OF RS.LL,65,091/ - HAVE TO BE REDUCED FROM THE EXPORT TURNOVER FOR THE PURPOSES OF COMPUTING AVAILABLE DEDUCTION UNDER SECTION 10AA OF THE ACT. 2.3 THE LD. AO HAS ERRED IN NOT FOLLOWING THE DIRECTIONS GIVEN BY LD. DRP THAT IS NOT TO INCLUDE AND ENF ORCE DEMAND ARISING OUT OF THE DISALLOWANCE OF THE EXCESS EXEMPTION CLAIMED BY THE APPELLANT U/ S. 10AA OF THE ACT. 5 ITA NO. 1919 /HYD/201 7 VALUE LABS TECHNOLOGIES, HYD. 2.4 THE LD. TPO / LD. AO / LD. DRP HAS ERRED BOTH IN FACTS AND IN LAW IN NOT APPRECIATING THAT HAVING EXCLUDED TELECOMMUNICATION CHARGES FR OM EXPORT TURNOVER, THE SAID CHARGES SHOULD ALSO HAVE BEEN EXCLUDED FROM THE TOTAL TURNOVER FOR THE PURPOSES OF COMPUTING AVAILABLE DEDUCTION UNDER SECTION 10AA OF THE ACT. 3. GROUND NO.3 3.1 THE LD. AO/LD. TPO/LD. DRP ERRED IN MAKING ALP ADJUSTMENT U/S . 92C(3) OF THE ACT' OF RS.17,71,128/ - TOWARDS INTEREST @ 6.5% ON OUTSTANDING RECEIVABLES FROM ASSOCIATED ENTERPRISES(AE'S) ON HYPOTHETICAL AND NOTIONAL BASIS WITHOUT THERE BEING ANY MATERIAL ON RECORD. 3.2 THE LD. AO/LD. TPO/LD. DRP ERRED IN NOT FOLLOWI NG THE PROCEDURE LAID DOWN UNDER THE PROVISIONS OF SECTION 92C OF THE ACT RELATING TO THE 'COMPUTATION OF ARM'S LENGTH PRICE' 3.3 THE LD. TPO / LD. AO / LD. DRP HAS ERRED IN LAW IN RE - CHARACTERISING THE AMOUNT OF OUTSTANDING RECEIVABLES DUE FROM ASSOCIATE D ENTERPRISE (' AE') AS A LOAN ADVANCED BY THE APPELLANT TO ITS AE WHICH IS NOT PERMISSIBLE U/S. 145 OF THE ACT.. 3.4 THE LD. TPO / LD. AO / LD. DRP HAS ERRED BOTH IN FACTS AND IN LAW IN NOT APPRECIATING THE FACT THAT NO INTEREST HAS BEEN CHARGED BY THE AP PELLANT ON THE VALUE OF OUTSTANDING RECEIVABLES DUE FROM AE AS WELL AS NON - AE. 3.5 THE LD. TPO / LD. AO / LD. DRP ERRED IN NOT APPRECIATING THE FACT THAT THE THERE IS NO CLAUSE RELATING TO CHARGING OF INTEREST ON DELAYED PAYMENT IN THE MSA AGREEMENT ENTERED WITH AE. 3.6 THE LD. TPO / LD. AO / LD. DRP HAS ERRED BOTH IN FACTS AND IN LAW IN NOT APPRECIATING THE FACT THAT THE APPELLANT ALSO RECEIVED ADVANCES ON WHICH NO INTEREST WAS PAID BY IT. 3.7 THE LD. TPO / LD. AO / LD. DRP HAS ERRED BOTH IN FACTS AND IN LAW IN NOT APPRECIATING THE FACT THAT THE OUTSTANDING RECEIVABLES ARE ACCRUED FROM THE SALE OF SERVICES RENDERED TO THE AE DURING THE NORMAL COURSE OF BUSINESS WHICH IS ALREADY HELD BY HIM TO BE WITHIN ALP AND HENCE IT CANNOT BE EQUATED TO THE TERM' CAPITAL FI NANCING' AS INTERPRETED IN SECTION 92B OF THE ACT. 3.8 THE LD. TPO / LD. AO / LD. DRP HAS ERRED IN NOT APPRECIATING THE FACT THAT, THE ASSESSEE HAS ADOPTED TNMM METHOD FOR DETERMINING THE ALP OF ITS TRANSACTIONS AND THE OPERATING MARGIN OF THE ASSESSEE IS M UCH HIGHER THAN ITS COMPARABLES, HENCE ANY ADJUSTMENT WITH REGARD TO ALP AFFECTING THE 6 ITA NO. 1919 /HYD/201 7 VALUE LABS TECHNOLOGIES, HYD. OPERATING MARGIN WOULD BE UNJUSTIFIABLE AND AGAINST THE PROVISIONS OF SECTION 92C OF THE ACT. 3.9 THE LD. TPO / LD. AO / LD. DRP HAS ERRED IN NOT APPRECIATING THE FACT TH AT NO ALP ADJUSTMENT IS REQUIRED TO BE MADE IN A CASE WHERE AFTER REDUCING THE 'ADJUSTMENT AS A PERCENTAGE OF OPERATING COST' STILL THE MARGIN OF THE ASSESSEE IS MORE THAN COMPARABLES. 3.10. THE LD. TPO / LD. AO / LD. DRP HAS ERRED BOTH IN FACTS AND IN LAW IN ONLY ALLOWING AD - HOC CREDIT PERIOD OF 30 DAYS AND HAVE FAILED TO APPRECIATE THAT THE RESERVE BANK OF INDIA ALLOWS A PERIOD OF ONE YEAR FOR RECEIPT OF EXPORT CONSIDERATION. 3.11 THE LD. TPO LD. AO / LD. DRP HAS ERRED BOTH IN FACTS AND IN LAW IN NOT APPRE CIATING THAT THE OPERATING MARGIN EARNED BY THE APPELLANT IN RELATION TO THE INTERNATIONAL TRANSACTIONS IS MORE THAN THE ARM'S LENGTH MARGIN DETERMINED BY THE LD. AO, AND THEREFORE SEPARATE COMPUTATION OF NOTIONAL INTEREST ON THE VALUE OF OUTSTANDING RECEI VABLES IS NOT WARRANTED. 3.12 THE LD. AO HAS ERRED BOTH IN FACTS AND IN LAW IN NOT FOLLOWING THE BINDING DIRECTIONS OF THE LD. DRP IN AS MUCH AS THE LD. AO HAS COMPUTED NOTIONAL INTEREST UP TO THE DATE OF ACTUAL RECEIPT WHEREAS THE LD. DRP HAD DIRECTED T HAT THE SAME SHOULD ONLY BE COMPUTED UP TO THE END OF FINANCIAL YEAR, I.E. 31 - 03 - 2013. 4. GROUND NO.4 4.1 THE LD.AO ERRED IN LEVYING INTEREST UNDER SECTION 234B OF THE ACT IN SPITE OF THE FACT THAT THE APPELLANT HAD DEPOSITED MORE THAN 90% OF THE ASSESSED TAX AS ADVANCE TAX. THE ABOVE GROUNDS ARE INDEPENDENT AND WITHOUT PREJUDICE TO ONE ANOTHER. THE APPELLANT CR AVES LEAVE TO ALTER, AMEND OR WITHDRAW ALL OR ANY OF THE GROUNDS OF APPEAL HEREIN OR ADD ANY FURTHER GROUNDS AS MAY BE CONSIDERED NECESSARY AND TO SUBMIT SUCH STATEMENTS, DOCUMENTS AND PAPERS AS MAY BE CONSIDERED NECESSARY EITHER BEFORE OR DURING THE APPEA L HEARING. 7. GROUND NO. 1 IS GENERAL IN NATURE AND GROUND NO. 4 IS REGARDING CHARGING INTEREST U/S 234B, WHICH IS CONSEQUENTIAL IN NATURE, THEREFORE, THE AO IS DIRECTED ACCORDINGLY. 8. AS REGARDS GROUND NO. 2 (2.1 TO 2.4) REGARDING CLAIM OF DEDUCTION U/S 10AA, THE LD. AR OF THE ASSESSEE SUBMITTED THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION OF THE COORDINATE BENCH OF 7 ITA NO. 1919 /HYD/201 7 VALUE LABS TECHNOLOGIES, HYD. THIS TRIBUNAL IN ASSESSEES OWN CASE IN EARLIER YEARS IN ITA NO. 475/HYD/2017 AND OTHERS VIDE ORDER DATED 15/12/2017. 9. LD. DR, ON THE OTHER HAND, RELIED ON THE ORDERS OF REVENUE AUTHORITIES. 10. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE COORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE (SUPRA) HAS OBS ERVED AS UNDER: 6. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT THIS IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. TATA ELXSI LTD, REPORTED IN 349 ITR 9 8 AND ALSO THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF B.A.CONTINUUM REPORTED IN I T TA NO.440/2017. WE FIND THAT THE CIT (A) HAS FOLLOWED VARIOUS DECISIONS OF THE ITAT WHICH ARE IN CONSONANCE WITH THE DECISION OF THE HON'BLE KARNATAKA HIGH COURT (C ITED SUPRA) WHEREIN IT HAS BEEN HELD THAT FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S 10 B OF THE ACT, IF ANY EXPENDITURE IS EXCLUDED FROM THE EXPORT TURNOVER, THEN THE SAME SHOULD ALSO BE EXCLUDED FROM THE TOTAL TURNOVER. RESPECTFULLY FOLLOWING THE SAM E, WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDER OF THE CIT (A) FOR ALL THE A.YS AND THE REVENUE'S APPEALS ARE ACCORDINGLY DISMISSED. FOLLOWING THE SAID DECISION, WE DIRECT AO THAT SINCE THE TELECOMMUNICATION CHARGES ARE EXCLUDED FROM EXPORT TURN OVER, THE SAID CHARGES SHOULD ALSO BE EXCLUDE D FROM THE TOTAL TURNOVER FOR THE PURPOSE OF COMPUTING DEDUCTION U/S 10AA OF THE ACT. ACCORDINGLY, THIS GROUND IS ALLOWED. 11. AS REGARDS GROUND NO. 3 (3.1 TO 3.12) REGARDING ADJUSTMENT U/S 92(3) ON OUTSTANDIN G RECEIVABLES OF RS. 17,71,128/ - , THE LD. AR MADE SIMILAR SUBMI SSIONS AS MADE BEFORE DRP AND RELIED ON THE DECISION OF ITAT, DELHI BENCH IN THE CASE OF BECHTEL INDIA PVT. LTD., 1478/DEL/2015 AND OTHER CASES AS PER CASE LAW INDEX. FURTHER, HE SUBMITTED THAT ASSESSEE HAS NO DEBT IN THE COMPAN Y AND NOT CHARGED ANY INTEREST ON DELAY IN PAYMENT EITHE R FROM AE OR NON - AE. 8 ITA NO. 1919 /HYD/201 7 VALUE LABS TECHNOLOGIES, HYD. 12. THE LD. DR, ON THE OTHER HAND, FILED WRITTEN SUBMISSIONS, IN WHICH IT WAS STATED AS UNDER: 2. WITH REGARD TO THE GROUNDS TAKEN ON CHARGING OF INTEREST ON RECEIVABLES, IT IS HUMBLY SUBMITTED THAT THE GROUNDS TAKEN BY THE ASSESSEE ARE DEVOID OF MERIT AS THE TRANSACTION FALLS UNDER THE PURVIEW OF INTERNATIONAL TRANSACTION. DUE PROCEDURE WAS FOLLOWED BY TPO IN CHARACTERIZING AND DETERMINING THE ADJUSTMENT RELATED TO THE SAID TRANSACTION. MERELY BECAUSE THERE IS NO CLAUSE IN THE AGREEM ENT WITH AE TO CHARGE INTEREST, THE ASSESSEE CANNOT ARGUE THAT ADJUSTMENT TO ALP CANNOT BE MADE. THIS ARGUMENT IS IN TOTAL CONTRADICTION TO THE PRINCIPLES OF TRANSFER PRICING WHEREIN THE TRANSACTIONS NEED TO BE EXAMINED ON PRINCIPAL TO PRINCIPAL BASIS AND NOT BASED ON MERE RECITALS IN AGREEMENTS. IT IS ALSO SUBMITTED THAT THE ARGUMENT THAT RBI ALLOWS A PERIOD OF ONE YEAR TO BRING IN FOREIGN EXCHANGE INTO INDIA IS IRRELEVANT BECAUSE IN THE TRANSFER PRICING ANALYSIS, ANY TRANSACTIONS WOULD BE EXAMINED IN THE SPHERE OF COMMERCIAL PRINCIPLES AND NOT IN THE CONTEXT OF REGULATORY REQUIREMENTS, WHICH ARE ONLY ENACTED WITH A VIEW TO PREVENT FRAUDULENT TRANSACTIONS OR IMPERMISSIBLE TRANSACTIONS. IT IS ALSO HUMBLY SUBMITTED THAT THE TPO CONDUCTED DETAILED ANALYSIS AND NOTICED THAT THERE WAS CONSIDERABLE DELAY IN REALIZING THE AMOUNTS RECEIVABLE FROM THE AE. THEREFORE, ON THE BASIS OF COMMERCIAL PRINCIPLES OF REALIZATION, THE CREDIT PERIOD OF ONE MONTH WAS TAKEN AS APPROPRIATE PERIOD. IT IS ALSO HUMBLY SUBMITTED THAT IN A PRINCIPAL TO PRINCIPAL ANALYSIS, THE FACTS THAT THE ASSESSEE IS A DEBT FREE ENTITY OR IT HAS NOT BORROWED FUNDS FOR PASSING ON THE BENEFIT TO THE AE ARE NOT RELEVANT AT ALL. 3. IN SUPPORT OF THE ARGUMENT THAT RECEIVABLES IS A SEPARATE INTERNATIONAL TRA NSACTIONS RELIANCE IS PLACED ON THE DECISION OF HON/BLE ITAT, DELHI BENCH IN THE CASE OF BECHTEL INDIA P LTD [2017] 85 TAXMANN.COM 121 (DELHI - TRIB.). RELIANCE IS ALSO PLACED ON THE DECISION OF HON'BLE ITAT, DELHI BENCH IN THE CASE OF TECHBOOKS INTERNATIO NAL LTD [2015] 63 TAXMANN.COM 114 (DELHI - TRIB.) ON THE ISSUE THAT THE TRANSACTION OF RECEIVABLES IS A SEPARATE INTERNATIONAL TRANSACTION. RELIANCE IS ALSO PLACED ON THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF PATNI COMPUTER SYSTEMS LTD [2013 ] 33 TAXMANN.COM 3 (BOMBAY) WHEREIN THE HON/BLE HIGH COURT TOOK COGNIZANCE OF THE FACT THAT THE TRANSACTIONS IN RECEIVABLES IS INTERNATIONAL TRANSACTIONS AND HELD SO FAR AS QUESTION (C) IS CONCERNED, COUNSEL FOR THE PARTIES STATE THAT IN VIEW OF THE AMENDM ENT TO S ECTION 92 B (1) OF THE INCOME TAX ACT, 1961 ('ACT' FOR SHORT) BY FINANCE ACT, 2012 WITH RETROSPECTIVE EFFECT FROM 1ST APRIL 2002, THE QUESTION AS FRAMED MAY BE RESTORED TO THE FILE OF THE TRIBUNAL FOR FRESH DECISION IN LIGHT ON THE AMENDMENT. ACCORDI NGLY, THIS ISSUE IS RESTORED TO THE FILE OF THE TRIBUNAL FOR FRESH DECISION ON MERITS'. 9 ITA NO. 1919 /HYD/201 7 VALUE LABS TECHNOLOGIES, HYD. 4. IT IS ALSO HUMBLY SUBMITTED THAT RELIANCE OF THE ASSESSEE ON THE DECISION OF HON B LE SUPREME COURT IN THE CASE OF BECHTEL INDIA P LTD (SLP (C) CC NO: 4956/2017) IS MISPLACED BECAUSE THE HON BLE SUPREME COURT DISMISSED THE SLP ON THE GROUND THAT THERE WAS NO QUESTIONS OF LAW. THIS IS NOT A RATIO DECIDENDI OR NOT EVEN OBITER DICTA ON THE SUBSTANTIAL ISSUE. ON THE OTHER HAND, AS REFERRED ABOVE, IN THE SAME CASE OF BECHT EL INDIA P LTD, HON BLE (TAT RENDERED A LATER DECISION, WHICH IS CITED IN THE ABOVE PARAGRAPH. 5. WITH REGARD TO THE COMPUTATION OF ADJUSTMENT ON ACCOUNT OF INTEREST ON RECEIVABLES, IT IS HUMBLY SUBMITTED THAT THE DRP DIRECTED THE AO TO COMPUTE THE INTERE ST TILL THE FINANCIAL YEAR END AND AS PER THE OWN CALCULATION OF THE ASSESSEE FILED BEFORE THE ITO, WARD - 8(1)/ HYDERABAD ON 09/10/2017 THE AMOUNT IS RS. 17 , 31 , 949/ - . IN THIS REGARD, HON BLE ITAT MAY ISSUE APPROPRIATE DIRECTIONS TO THE A O TO COMPUTE THE A MOUNT IN ACCORDANCE WITH THE DIRECTIONS OF THE DRP. 13. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. W E HAVE CONSIDERED THE CASE LAW, RELIED ON BY ASSESSEE AND NOTICED THAT THESE DECISIONS ARE RELATING T O ASSESSMENT YEARS INVO LV ING PRIOR TO A MENDMENTS MADE IN FINANCE ACT, 2012 IN SECTION 92B. THESE RATIOS ARE RELEVANT FOR THOSE ASSESSMENT YEARS PRIOR TO A MENDMENT. COMING TO THE CASE ON HAND, THIS IS FOR AY. 2013 - 14 THE YEAR IN WHICH THE AMENDMENT COME INTO FORCE. THEREFORE, THIS IS APPLICABLE FROM AY. 2013 - 14 ONWARDS. 13.1 AS THE DEFINITION OF SECTION 92B IS AMENDED TO BRING IN THE NATURE OF FINANCING BY WAY OF ALLOWING THE AES TO RETAIN THE TRADE RECEIVABLES BEYOND REASONABLE PERIOD. IN OUR VIEW, THE OUTSTANDING T RADE RECEIVABLES BEYOND REASONABLE PERIOD WILL COME UNDER INTERNATIONAL TRANSACTIONS AS PER AMENDED SECTION 92B. ACCORDINGLY, THE ASSESSEE AS WELL AS TPO HAVE TO DETERMINE WHAT IS THE REASONABLE PERIOD OF OUTSTANDING WHICH THEY CAN ALLOW TO THE AES. IT MAY BE AS PER THE BILATERAL AGREEMENT OR TRADE PRACTICE IN THE INDUSTRY O R HISTORICAL AVERAGE COLLECTION PERIOD OF THE ASSESSEE OR REFERENCE CA N BE DRAWN FROM STA TUTORY LIMITS FIXED BY THE LEGISLATURE IN THE SIMILAR ENACTMENT. 10 ITA NO. 1919 /HYD/201 7 VALUE LABS TECHNOLOGIES, HYD. 13.2 THEREFORE, WE DIRECT THE TPO TO DETERMINE THE INDUSTRY AVERAGE OR AVERAGE OF COLLECTION PERIOD ADOPTED BY THE COMPARABLE COMPANIES SELECTED FOR THE TP STUDY AND CALCU LATE AVERAGE COLLECTION PERIOD OF THE ASSESSEE D URING THIS ASSESSMENT YEAR. FURTHER, W E NOTICE THAT TPO HAS SELECTED ONLY 9 TRANSACTIONS WHICH HA VE CROSSED ONE MONTH TO DETERMINE THE ADJUSTMENT OF TP WHEREAS ASSESSEE HAS TRANSACTED TOTAL 31 TRANSACTIONS D URING THIS YEAR. TPO HAS TO CALCULATE THE AVERAGE COLLECTION PERIOD F OR THIS YEAR. WHETHER THE AVERAGE COLLECTION PERIOD IS WITHIN INDUSTRIAL AVERAGE OR NOT HAS TO BE DETERMINED. SINCE WE DO NOT KNOW THE INDUSTRY AVERAGE, WE REMIT THIS ISSUE BACK TO THE FILE OF TPO TO DETERMINE THE INDUSTRIAL AVERAGE AS DIRECTED ABOVE I.E. CALCULATE THE AVERA GE COLLECTION PERIOD OF THE COMPARABLE COMPANIES SELECTED FOR THE TP STUDY A ND AVERAGE C OLLECTION PERIOD OF THE ASSESSEE FOR THE WHOLE YEAR. THE COLLECTION DURING THE YEAR WHICH ARE WITHIN THE INDUSTRY AVERAGE SHOULD BE ALLOWED AND ONLY THE COLLECTION PER IOD BEYOND INDUSTRIAL AVERAGE ALON E SHOULD BE CHARGED WITH THE INTEREST BASED ON THE RATE OF LIBOR SINCE IT IS INTERNATIONAL TRANSACTION. 13.3 HENCE, THE GROUND RAISED BY ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 14. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 5 TH APRIL , 201 9. SD/ - SD/ - ( P. MADHAVI DEVI ) (S . RIFAUR RAHMAN ) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED: 5 TH APRIL , 2 01 9. KV 11 ITA NO. 1919 /HYD/201 7 VALUE LABS TECHNOLOGIES, HYD. COPY TO: - 1) M/S VALUE LABS TECHNOLOGIES, PLOT NO. H - 09, SY.NO. 30 (PART), 34(PART), IT/ITES SEZ, PHONEX INFOC PVT. LTD., HYDERABAD 500 081. 2) ITO, WARD 8(1), HYD 3) DRP - 1 , BENGALURU 4) PR. CIT 2 , HYD. 5 ) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDERABAD. 6 ) GUARD FILE